Inflation: an investor’s friend and foe | NAOS Asset Management

Published via Livewire 21st April 2022 by Sebastian Evans 

The data is showing it, central bankers are focusing on it and the community are feeling it at the fuel pump, the food aisle and through friendly conversations at the café. After more than two decades of ‘nothing to see here’, inflation appears well and truly set for a comeback. With ultra-low interest rates soon to be a thing of the past, how should companies and investors alike pivot their thinking around investment decisions to factor higher inflation? And amongst the doom of higher prices, are there reasons to be more positive about the prospect of inflation in equity markets?

From the earliest days of high school economics classes, we were drilled on the history of inflation, why it exists and the devastating economic impact it can have if not kept in check. We were lessoned on the inflation shocks of the 1960s, 70s and 80s and their economic impacts. We were enlightened on the flow-on impacts of variables like oil prices, currencies and the intersection with geopolitical factors.

But one clearly contrasted factor in the current environment compared with prior periods is the unprecedented situation where the major economies are flush with essentially free money.

"Central bankers are now tackling questions on how to unwind the excesses before inflation affirms its path. No doubt they are re-examining inflation’s lessons of the past...."

Read the full article by Sebastian Evans (CIO, NAOS Asset Management)